(Germany is to Greece) as (China is to the U.S.)

2015-07-05

The news now is of Greek voters rejecting the demands of Greece's creditors,
leading to a strong likelihood that Greece will be cut off from
the loans that it has relied upon for its economic well-being.
Greece has been running large, for the size of its economy, and unsustainable deficits
in government spending and in its balance of trade.
Sound familiar?

In the case of Greece and the European Union,
it is Germany that is both Greece's principal creditor and supplier of goods.
Germany, led by her chancellor Angela Merkel,
has shown unwillingness to keep funding Greece's deficits,
demanding that Greece improve its productivity, restrain its consumption,
or some combination of both.
The Greek citizenry has responded negatively,
seeming to think it has some leverage with the Germans.
It is hard for me to see exactly what realistic leverage they have.
Cut off German tourists from seeing the Acropolis?

Exactly the same underlying dynamic is at play between China and the U.S.
The U.S. runs large and growing deficits in the budgets of
practically all of its component governments,
and also in its balance of trade and current account balance.
The U.S. balance of trade is of course especially negative with respect to many countries in Asia,
notably China (but also with Japan).
Thus far, the Chinese have been willing to recycle their growing stock of dollars
into financing the U.S. economy, in particular various U.S. governments.
In other words,
China takes our dollars (in return for products) and then loans them back to us.
This is great for those Americans who love consumption,
but terrible for those Americans who hate to see the ability to produce goods
moved to Asia.
Some of us (maybe only old fogies such as myself) believe
a strong America is a productive America,
not one that leads the world in consumption.

Anyhow, one certainly should wonder
how long the Chinese, and other Asian nations,
will keep selling us goods at such low prices and financing our deficits.
Only a fool would think that they will do this indefinitely.
Only a scoundrel would refrain from warning Americans about
the threat to America's future inherent in
the loss of America's productive capacity.
The day when China does to the U.S.
what German-led Europe is doing to Greece
cannot be put off forever.